Economic Development and Policies

Urjit Patel resigns as RBI governor

Well known economist and Reserve Bank of India (RBI) Governor Urjit Patel resigned today (December 10, 2018).  He said that he has decided to “step down” from his current position effective immediately “on account of personal reasons”. The governor’s decision to resign came five days after the bi-monthly policy meeting, in which he refused to answer questions on the controversies surrounding the RBI’s autonomy. He also appreciated the support and hard work of RBI staff, officers and management saying that it had been the proximate driver of the Bank’s considerable accomplishments in recent years. He expressed gratitude to his colleagues and Directors of the RBI Central Board, and wished them all the best for the future. All sober officers like Urjit Patel claim personal reasons when they resign, but public and observers do not take such reasoning on its face value. The differences between the RBI and government came loudly in public domain in last few weeks. Resignation of the RBI government is no doubt partly because of irreconcilable difference between the approach of the RBI and government. Media reports were rife with speculation of Urjit Patel’s resignation following the government’s decision to invoke the never-used-before special powers under Section 7 of the RBI Act to initiate consultation on a range of issues such as the Prompt Correct Action (PCA) norms, RBI’s capital reserves, and liquidity problem in NBFCs.

To clear the cloud, few minutes after Urjit Patel announced his resignation, Prime Minister Narendra Modi tweeted praise for him, saying that he is “an economist of a very high calibre with a deep and insightful understanding of macro-economic issues”. The PM added, “He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability”.

Former Governor of the RBI, Raghuram Rajan, reacting  on Urjit Patel’s decision to step down, said that the autonomy of the central bank should not be undermined. He said, “Believe resignation of RBI Governor Urjit Patel is a matter of great concern. Resignation by a government servant is a note of protest when faced with circumstances they cannot deal with” .  While refusing to speculate what led to Urjit Patel’s resignation, he advised the government to take “extreme care” in its relationship further with the RBI. “Need to understand what prompted this act by Urjit Patel”.

Urjit Patel was appointed the 24th governor of the RBI on September 2016 for a three-year term. He was heavily criticised for his silence on demonetisation, which was announced just two months after he took the position. Urjit Patel earlier served as a deputy governor of the RBI and was elevated to the governor’s position after Raghuram Rajan’s tenure ended.

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